We will fund over 30 startups a year: Paul Singh, 500 Startups

Set up in 2010, 500 Startups has funded over 400 startups globally. In a chat with ET Now, Paul Singh outlines the fund’s future plans in India.

The Indian information technology industry best known for services will evolve into a product-led sector in the coming decade according to Paul Singh, partner at 500 Startups, a US-based seed fund and startup accelerator. Set up in 2010, the accelerator has already funded over 400 startups globally, ten of which are from India. In conversation, with Peerzada Abrar, Singh outlines the fund's future plans in India. Excerpts:

How much of of your total investments will be in India?

About 70% of investment so far has been in the US. In the next two years, India and Brazil will account for a quarter, if not more. In just six months, we have invested in 10 Indian startups including Cucumbertown, TradeBriefs, InstaMojo and WalletKit. Our average cheque amount is about $50,000 and I want to invest in 30-50 startups annually. We have to allocate money for follow-on funding as well. We will probably invest $1 million a year to begin with across 30-50 startups.

What are the trends in the Indian market that are attractive to investors?

The two major markets for us are India and Brazil. In India, you have over 100 million internet users today. It is still early days for technology product companies, as the past two decades were dominated by outsourcing, which is why M&A activity has been really low here. However now there are companies like InMobi and Directi and in the next decade India is going to be known as the product economy. It is not going to happen overnight, but will happen in the next three years. I come here every 45 or 60 days and hope to become an aggressive and active early stage investor.

What factors will create a robust ecosystem for mergers and acquisitions?

The big opportunity is a growing internet base and the huge middle class here. In the short term Indian startups will grow fast if they focus on building a sticky product for all these consumers to use. Monetisation will come, as the middle class grows, even policy will change. There will be more M&A activity. Our fund economics and targets are built around the idea of investing in companies that are prime candidates to deliver a $100 million exit, if anything like that happens, it is icing on cake.

What market niche will your fund fit into in the Indian scenario?

There are a lot of players who can write cheques in India and globally for $1-2 million. On the other side, you have rising number of angels and government programmes like the Singapore National Research Foundation (NRF) Fellowship Scheme. Entrepreneurs have more access to capital but the problem is there is still a big gap. It is easier for an Indian founder to raise $25,000 to start, but then there are only about 3-5 investors who can write the next $100,000 cheque that will act as a bridge to formal venture capital. We fill that gap.

Do you see a need for a reworking of the venture capital system?

Many of the investors here get a bad reputation for being slow and not being friendly to founders, that makes my life a little bit easy. While everybody complains how hard it is to work in India, there is a lot of money to be made here. My fiduciary duty governed by the SEC of United States is to place money in companies that win. Within the next five-seven years, there will be an Indian startup that hits $1 billion market capitalisation within 12 months. It is going to happen. It is not a question of if, but when.